Treasurers are responsible for the capital structure and funding strategy of their companies, which includes the funding element that comes from equity – but yet I bet most of us spend the bulk of our time on the debt side of the balance sheet.
The problem is that the equity side is less flexible to adjust and manage and certainly more expensive in issue related costs. And have you seen the thickness of an equity prospectus?
I raise this now because of the fuss we are seeing in the market at the moment over the rights issues by several major banks. Their problem, or at any rate one of their many problems, has been that having announced a rights issue at a heavily discounted price the dismal market tone has meant the market price dipping below the rights price, thus rendering it totally unattractive to shareholders. While we cannot control the market share prices, we could institute a far quicker timetable for the whole process.
As Paul Myners, the author of the 2005 report on pre-emption rights, said in the Telegraph a week ago,
In the HBOS case, this document ran to 192 pages but the only really important information, a trading update and an explanation of the purpose of the equity raising, took just half a dozen pages.
It is important to preserve the pre-emption rights of sharehoIders but I think we must cut down on the paperwork, go electronic on the shareholder voting process and remove the time period at risk.
See the latest guidance from the pre-emption Group.